Colony Bankcorp, Inc. — 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. Colony is a Georgia-based bank holding company operating through Colony Bank, with banking, mortgage and SBA lending businesses. It reported 31 banking offices and approximately $2.7 billion in assets at year-end. Results include SouthCrest from its August 1, 2021 acquisition date.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets, year-end | $2.692 billion | $1.764 billion |
| Total loans, year-end | $1.338 billion | $1.060 billion |
| Total deposits, year-end | $2.375 billion | $1.445 billion |
| Total stockholders’ equity, year-end | $217.7 million | $144.5 million |
| Net interest income | $66.2 million | $55.2 million |
| Noninterest income | $36.3 million | $24.2 million |
| Net income | $18.7 million | $11.8 million |
| Diluted earnings per share | $1.66 | $1.24 |
| Net interest margin, tax-equivalent | 3.39% | 3.50% |
| Cash and cash equivalents, year-end | $197.2 million | $183.5 million |
Net interest income increased about 20%. Management’s tax-equivalent presentation attributes the increase to higher average earning assets, PPP loan fees and lower funding costs; the margin nevertheless declined 11 basis points. Provision for loan losses was $0.7 million, down from $6.6 million. Cash flow from operations was $36.1 million; investing activities used $208.3 million and financing activities provided $186.0 million.
Noninterest income rose 49.7%, led by SBA loan-sale gains ($7.5 million versus $1.6 million), mortgage fees ($13.2 million versus $9.1 million) and interchange fees ($6.9 million versus $5.0 million). Noninterest expense increased to $78.6 million from $58.3 million, including $4.6 million of acquisition-related expense and higher compensation and technology costs.
Year-end borrowings totaled $88.4 million, including $24.2 million in subordinated debentures; the PPP liquidity facility was repaid in 2021. The reported loans-to-deposits ratio was 56.3%. The Bank’s year-end regulatory capital ratios were above well-capitalized thresholds; the Company reported a 9.87% common equity Tier 1 ratio and a 7.25% Tier 1 leverage ratio.
Material changes and unusual items
- SouthCrest was acquired for approximately $93.0 million in combined stock and cash consideration. Colony issued about 4.0 million shares valued at $71.4 million and paid $21.6 million cash. The acquisition added eight Georgia banking locations and $35.0 million of goodwill.
- Year-end loans increased 26.3% and deposits increased substantially, with acquisition effects contributing to growth. Commercial real estate and residential real estate made up 87.1% of loans, compared with 77.8% a year earlier.
- Nonperforming assets decreased to $5.8 million, or 0.21% of assets, from $10.2 million, or 0.58%. The allowance for loan losses was $12.9 million, 0.96% of loans, versus $12.1 million, 1.14%, in 2020. Net recoveries were $83,000, compared with $1.3 million of net charge-offs in 2020.
- Available-for-sale securities totaled $938.2 million. Unrealized losses reduced accumulated other comprehensive income by $13.0 million after tax during 2021; management attributed the losses largely to higher market rates and did not consider them other-than-temporary.
- On February 10, 2022, after year-end, Colony issued 3,848,485 shares at $16.50 per share, raising approximately $63.5 million before any offering costs.
Outlook, risks and contingencies
No specific earnings or revenue guidance is provided. Management expected multiple Federal Reserve rate increases in 2022 and believed Colony’s asset-sensitive balance sheet could benefit. Its model projected next-12-month net interest income increases of 6.83% and 13.80% under parallel rate increases of 100 and 200 basis points, respectively, and a 3.18% decline under a 100-basis-point decrease. Actual results may differ, particularly if deposit costs reprice faster than assumed. Management also cited loan demand and the continuing effects of COVID-19, supply-chain disruption, labor shortages and inflation as uncertain factors.
Key exposures include Georgia-centered operations, real estate concentration, commercial credit, interest-rate and deposit-funding risk, acquisition integration and execution, competition, cybersecurity and regulatory compliance. Hotel loans were $62.9 million, or 4.7% of loans. Management considered the allowance adequate but noted that further credit provisions could be needed. CECL adoption was scheduled for the fiscal year beginning after December 15, 2022. The filing reported no material pending legal proceedings; ordinary-course proceedings were not expected by management to materially affect financial position.
Important facts for investors to verify
- How SouthCrest and the insurance-agency acquisitions perform after integration, including whether anticipated cost savings and revenue benefits materialize.
- Credit quality and collateral values, especially in commercial real estate, hotel lending and other sectors affected by pandemic aftereffects; review allowance assumptions and the planned CECL transition.
- Whether rising rates improve net interest income as modeled, considering deposit repricing, funding competition and securities valuations.
- The effect of the February 2022 equity offering on share count, capital deployment and per-share earnings; also confirm the dividend’s sustainability and regulatory capacity.
- Liquidity and funding disclosures, including borrowing availability, pledged securities and the maturity profile of deposits and borrowings.
- The audited statements received an unqualified opinion. The auditor did not attest to internal control effectiveness; management reported effective controls. The auditor identified the allowance for loan losses as a critical audit matter.